AXIS Capital's CEO Discusses Q4 2011 Results - Earnings Call Transcript

AXIS Capital Holdings Limited ( AXS)

Q4 2011 Earnings Conference Call

February 8, 2012 10:00 AM ET

Executives

Linda Ventresca – Executive Vice President, Corporate Development Officer

John Charman – CEO and President

Albert Benchimol – Chief Financial Officer

Analysts

Josh Shanker – Deutsche Bank

Vinay Misquith – Evercore

Matthew Heimermann – JPMorgan

Brian Meredith – UBS

Jay Cohen – Bank of America

Presentation

Operator

Good morning, and welcome to the AXIS Capital fourth quarter 2011 earnings conference call. All participants will be in listen-only mode. (Operator instructions) Please note, this event is being recorded. I would now like to turn the conference over to Linda Ventresca. Please go ahead.

Linda Ventresca

Thank you, Amy. And good morning, ladies and gentlemen. I am happy to welcome you to our conference call to discuss the financial results for AXIS Capital for the fourth quarter and year ended December 31, 2011. Our earnings press release and our financial supplement were issued yesterday evening after the market closed. If you would like copies, please visit the Investor Information section of our website www.axiscapital.com.

We set aside one hour for today’s call, which is also available as an audio webcast through the Investor Information section of our website. A replay of the teleconference will be available by dialing 877-344-7529 in the United States. The international number is 412-317-0088. The conference code for both replay dial-in numbers is 10008393.

With me on today’s call are John Charman, our CEO and President, and Albert Benchimol, our CFO. Before I turn the call over to John, I will remind everyone that statements made during this call, including the question-and-answer session, which are not historical facts, may be forward-looking statements within the meanings of the US federal securities laws.

Forward-looking statements contained in this presentation include, but are not necessarily limited to, information regarding our estimate of losses related to catastrophes, policies and other loss events; general economic, capital and credit market conditions; future growth prospects, financial results, and capital management initiatives; the valuation of losses and loss reserves; investment strategies, investment portfolio and market performance; impact to the marketplace with respect to changes in pricing models; and our expectations regarding pricing and other market conditions.

These statements involve risks, uncertainties, and assumptions, which could cause actual results to differ materially from our expectations. For a discussion of these matters, please refer to the Risk Factors section in our most recent Form 10-K on file with the Securities and Exchange Commission. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

In addition, this presentation contains information regarding operating income, which is a non-GAAP financial measure within the meaning of the US federal securities laws. For a reconciliation of this item to the most directly comparable GAAP financial measure, please refer to our press release, which can be found on our website.

With that, I’d like to turn the call over to John.

John Charman

A very good 2012 morning to you, ladies and gentlemen. In 2011, AXIS celebrated its 10th anniversary, and I’m enormously proud of the success AXIS has had in realizing our founding vision. However, I cannot imagine any greater test for our company celebrating such a milestone than the events that have occurred in the past year.

AXIS has experienced an unprecedented set of extremely stressful circumstances on both sides of its balance sheet. On the underwriting side, an extraordinary series of natural disasters, which are estimated across our industry over $100 billion, took center stage in 2011. The timing of these losses occurred against the backdrop of a prolonged soft market, but perhaps the weakest phase in this business cycle when adequate pricing remained extremely difficult to obtain.

Further, on the asset side, we experienced the persistence of abnormally low interest rates, which made low risk investment income difficult to achieve. At the same time, we weathered severe volatility in the financial markets, which agonized over the possible breakup of the Eurozone, threatening to send one of the world’s key economic regions into financial chaos.

We also encountered a host of other uncertainties, including political paralysis, the ratings downgrade of major economies, and the fear of faltering growth in both the United States and China. As an Englishman would say, it certainly was a slow year for us. For the year, AXIS’s diluted book value per share declined by 3.3% to $38.08, reflecting the high level of catastrophe losses. Net income available to common shareholders was $9.4 million. Return on average common equity for 2011 was a nominal 0.2%.

While we are unhappy with the adverse impact of these extraordinary events on our earnings, we are nonetheless satisfied with the ability of our portfolio to absorb the significant losses without impairing our financial strength. Over the long-term, however, we have compiled an exceptional record, and I’m pleased that even during such a difficult year, we continued to invest in our company and delivered franchise value to our shareholders.

Diluted book value per share adjusted for cumulative dividends declared has risen at a compound annual rate of 13.7% from 2002 through 2011. Our return on average common equity, which was marginal in 2011 due to the high level of catastrophe losses, has averaged 14.2% over 10 years. We are navigating a transitioning market, which I will describe in more detail later. And we are proceeding with appropriate caution.

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